Quick Take: The two sides of supply

Property Put

Quick Take: The two sides of supply

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At this year's parliamentary sessions, China's policymakers promoted 'supply-side economics' to tackle the property and industry oversupply that drags on China's economic growth. An analogy put forward by the state media is that using investment, consumption and exports to stimulate demand results in short-term economic effects, similar to taking Western medicine with its side effects. 'Supply-side economics' they argue is equivalent to taking Chinese medicine, long term benefits, with minimal side effects. Which is curious, since government actions in the property market resemble more the taking of stimulants than sipping green tea.
 
Over the past few weeks, a buying frenzy has pushed up property prices in tier-one cities, fueled by loans for mortgage payments, and a limping stock market. A recent scandal involves the Shanghai branches of HomeLink, a nationwide real estate agent providing high interest loans for investors speculating on the housing market. A similar model was used to enable investors to leverage their bets in last year's equity bull run.
 
Yet the real culprit is loose monetary policy. Having failed to induce structural rebalancing and curb excessive construction, the government has relented and handed the property market back to speculators. With fewer investment opportunities in the real economy, six interest rate cuts since November 2014, complemented by cuts to bank reserve requirement ratios, have channeled excess Chinese capital first to the stockmarket, and now back to real estate in the search for yield.
 
Last month, the minimum downpayment on second homes was reduced to 30%, the same level facing first home property buyers last year. 

Author: Christopher Aston